Monday Moves v1.5: The Real Estate Remix
Sam: Would you rather own a spec office building or a free standing JCPenny? Both are about to experience massive shake ups as we continue to feel the repercussions of Covid. Strap in for some analysis on the real estate market and a fun story on how quick thinking music executives stole a marketing move from 1979.
Raj: A Certain Romance is a song by Arctic Monkeys lamenting the lack of romance, beauty, and poeticism in Yorkshire of 2006. Alex Turner has a famous line going: “There’s only music so that there’s new ringtones.” Well, in a dreary condemnation of the world of 2020, if the song were made today it would replace “ringtones” with “TikToks.” Where did it all go so horribly wrong?
Sam: Remember Ringtone Rap? Now there are TikTok Titles.
The year is 1979, and there is a new song on the radio that is gaining popularity. Fans head down to their local record store to grab a copy, but the sales staff doesn’t know anything about “the pina colada song.” Why? The official title of the song is Escape. Only after the record label realized their error was the song title adjusted to Escape (The Pina Colada Song). The same issue is happening now, with fans of viral song snippets on TikTok struggling to find the entire track online. Rolling Stone chronicles the problem fans and artists are having, and the simple solution is over 4 decades old: record labels are changing song titles to help fans find and stream songs. One of the recent viral songs started out with the name ily but now sports the title ily (i love you baby). Another song, Sex, now includes the key words (Catching Feelings). These additional, parenthetical titles, are key lyrics that are included in the 15 second cuts used on viral TikTok videos. As fans go to google the key words, they now can find the full song to stream ($), stream other songs by the same artist ($$), buy merchandise ($$$) and eventually go to concerts ($$$$). With TikTok’s rabid ability to create superstars overnight, it is no surprise that record labels want to direct that energy properly, and the first step is search engine optimization. *See below for related fun note*
Since roughly 15 seconds of songs are used in TikTok videos, tracks which gain popularity through the app have a catchy hook (or other part of the song) which works well for the viral video format. This has me thinking… will TikTok bring the era of Ringtone Rap 2.0? Ringtone Rap was a genre of music from the mid 2000s that exploded when record labels realized ringtone sales were immensely profitable. Songs featuring captivating beats and repetitive lyrics were promoted, and the resulting music from this era was a string of one-hit wonders that sounded decent blaring through the speakers of a Motorola Razr (fantastic article detailing the Ringtone Rap revolution here). Will the promotional power of TikTok lead record labels to specifically create songs which will work well in a short video in hopes of going viral? Absolutely.
Sam: Amazon has another company in its crosshairs… and I am proud to say I called it this time.
On Friday May 15th, JCPenney announced they were declaring bankruptcy, and on Monday news broke that executives from Amazon were meeting with JCPenny representatives. The day before this trajectory started, a tweet from an underappreciated economic mind (read: me) predicted the whole thing. Personally, I am insulted I was not interviewed for articles on the situation. All jokes and hurt feelings aside, it looks like Amazon is taking a run at JCPenny and it makes a lot of sense.
There are a few main reasons Amazon would benefit from acquiring JCP, and I am going to outline them below. As someone who works in commercial real estate (specifically retail) I have read a lot on this subject, and would recommend this article from Forbes and this article from BizNow for expanded details and interviews with more highly qualified folks.
It is a real estate play (isn’t it always?). One of Amazon’s largest competitors, Walmart, has one of the most impressive retail footprints in the world, and as a result 90% of Americans live within 10 miles of a Walmart. Think about how helpful that is when it comes to fulfilling deliveries and building brand loyalty. It would take decades for Amazon to buy and lease the space needed to have a similar presence... or they could simply buy JCP and get a jumpstart. JCP’s real estate assets are valued between $700M and $1.4B, and they have a strong presence in both suburban and rural communities. The new legroom would help Amazon with its distribution network, ultimately saving money for Amazon while giving consumers more choices. Amazon could use JCP locations as distribution centers while giving customers the ability to pick up orders and drop off returns. Amazon’s shipping costs increased 49% in the first quarter of 2020, and an expanded distribution footprint would help alleviate these costs.
Amazon needs help in the fashion department. Amazon has already made notable acquisitions that have helped it grow in technology, media (IMDb, Audible, and maybe AMC), and grocery (Whole Foods in 2017) but they are lacking when it comes to fashion. Amazon did snag Zappos in 2009, but acquiring JCP would help solidify Amazon’s presence in the apparel world making them a stronger contender against Macy’s, Nordstrom, the TJX stores, etc. Amazon would have the ability to build on the JCP name while promoting their own in-house brands. The end result would be a more streamlined, omni-channel, retail experience which consumers have come to expect from many retailers, especially in apparel.
The biggest questions surrounding the potential merger is if Amazon would keep the 118 year old JCPenny name, and what percentage of existing stores would be retail vs distribution. Since I know you are all anxious to hear my prediction here we go: I think that Amazon will acquire JCPenny in its entirety, keep at least part of the name (hopefully not something stupid like A-ZPenny), and then use 1/3 of each store for retail and the rest as satellite distribution centers. Place your bets.
Raj: Remote work is going to accelerate the decline of large American cities while accelerating the growth of smaller ones.
A series of companies last week, including Twitter, Square, Shopify, and Coinbase, have enacted various policies all pretty much preferring remote work...forever. Coinbase calls it “remote first” while Shopify calls it “digital by default”. Shopify CEO Tobi Lutke boldly proclaimed: “office centricity is over.”
There’s a lot at stake here, especially for the future of American cities. Some are predicting that remote work might accelerate an outright collapse of cities while others think nothing will change. Shifting toward remote work promises to save companies tens of thousands a month on office space, which is likely a more compelling incentive for the move than employee happiness. This isn’t a completely new trend, as Automattic (the company behind Wordpress) closed their office back in 2017. But as this becomes a practice en masse, there is a real estate crisis waiting to happen. As it becomes extremely hard to find tenants for already built office spaces, hacker houses, and shared workspaces, you end up with a whole lot of properties throughout urban centers plummeting in value. The economic downturn has already harshly accelerated a host of issues causing a downward spiral of American cities. Remote work could be the straw that breaks the camel’s back.
At the same time, not every company will be going remote. Plenty of white collar work does need to happen in person. And many tech CEOs are being conservative in their adoption, like Sundar Pichai of Google:
“How productive will we be when different teams who don’t normally work together have to come together for brainstorming, the creative process?”
“In all scenarios I expect us to need physical spaces to get people together, absolutely.”
And crucially, young people like living in cities. It’s easy for a financially secure 40 year old to proclaim that young professionals will move to America’s heartland when they’re not the ones swiping on Tinder in those places. No young person in a big American city is going to pack up and move to Boise just because it’s more affordable. Living with your parents is still not part of American culture, so if young people do choose to move out it will be for lifestyle reasons. This is why I’m bullish on the rapid growth of secondary cities like Denver, Phoenix, and Salt Lake City along with the decline of New York and San Francisco.
Raj: Remote work makes work more convenient but makes the job applicant pool more competitive. The real winners are employers.
It’s unclear whether remote work is a complete win for workers and job seekers. True, a lot of job opportunities will open up for white collar workers who can work for a San Francisco company remotely from a home in Boise (for sake of consistency with the previous post). They no longer will have to make a decision between moving or taking a job in their vicinity.
Employers too will reap the benefits of remote work in the hiring process, and this may not bode entirely well for job seekers. “Everyone loves remote work until they realize 7 billion people will soon be competing for the job they have,” tweeted Sahil Lavingia a couple days ago. It’s a wild exaggeration but carries the spirit of a growing truth. If work visas really stop mattering, and if culture fit, time zones, etc. can be overcome, then it’s going to become easier than ever for companies to hire cheaper offshore talent. Lean startups in which the whole team needs to work together might not be able to reap these rewards, but large corporations certainly will. And companies will get a greater number of applications from talented job seekers. Additionally, it’s a lot easier to hire and fire remote workers.
So who wins, job seekers or job providers? There’s upside for a San Francisco based company to hire an Indian worker, but it’s not worth it for an American worker to look for a relatively low paying job in India. So while remote work is a flattening force looking for job seekers globally, it may end up vastly tipping the balance in favor of employers.
That’s all for this week. Keep on moving.
*Okay actually that is not all for this week! I wanted to take the opportunity to point out that every DJ uses this technique for sorting their music. I pride myself in my knowledge of music, and 90% of the time I can name a song when someone sings the hook or beginning. However, there are times where someone comes up and requests “that one songs that goes …” and I draw a blank. Luckily, myself, other DJs, and many record pools, have the lyrics to the song in the notes section of the ID3 tag. A simple lyric search in your software of choice will bring up the correct song and off we go. I have also seen many songs come with additional parenthetical titles in the same style mentioned above - just a few key words to help jog our memory when the title does not match the lyrics. Another reason why DJs should be record label executives. - Sam
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Until next Monday,
Raj & Sam